Emergent Strategies for Business Operation - Case Study Example

Summary The following is an investigative study into the function of Strategic Management, with specific interest in the occurrence of ‘Emergent’ strategies with respect to the environment where a business operates. The study used various literatures and a discussion on the PESTEL tool and has found that whilst certain external elements give rise to emergent strategies in turbulent environments, other factors like centralised organisational structures eliminate the need for such strategies. At the same time, although stable environments predominantly show less need for such strategies, there are however instances where emergent processes are implemented in such environments, and culminated with corporate or deliberate strategy. Decentralisation has been found to be most effective for stable environments, whilst a combination of centralised and decentralised structures, effective for turbulent ones, dependent upon external factors. The study ends with an open-ended conclusion to recognise that emergent strategies will be further studied and applied, and that the proposed idea that stable environments favour prescribed strategy whilst turbulent environments favour emergent ones may not be applicable. Introduction to Strategy: The role of strategy has been evolving over the years from something that just used to be a corporate function to other areas of management within an organisation. Strategy is that function of an organisation where decisions and plans are made, which reflect the long-term objectives of the organisation, and is independent from decisions made on a daily level (Stahl and Grigsby, 1997). Other definitions include, “the pursuit of superior performance by using a plan that ensures a better or stronger matching of corporate strengths to customer needs than is provided by competitors” (Ohmae, 1982 cited by Joyce and Woods, 2002, p8). It can be argued that the above definitions may be interdependent because attaining competitive advantage may sometimes be seen as a long-term objective by organisations, depending upon the market environment they operate in (Johnson et al, 2008). The definitions also show that there are internal and external implications to strategy, where the internal factors may include the structure of the organisation, the kind of corporate governance (leadership) that exists within the organisation, and the function of Human Resources Management. The external factors may include the Political, Economic, Sociological, Technological, Environmental, and Legal (PESTEL) issues associated within a given market environment where the organisation operates. There are other methods of external analyses that influence strategy like the SWOT (Strengths, weaknesses, opportunities and threats) analysis and Porter’s five forces, which are all helpful for the organisation to make strategic decisions in order to attain competitive advantage (Porter, 1995; Drummond et al, 2001; Kotler, 2003; Johnson et al, 2008). ‘Emergent Strategies’ defined: The purpose of this essay is to investigate the area of strategic management with respect to the above factors, and to determine whether organisations in stable environments follow prescriptive approaches to strategy whilst those in turbulent environments follow emergent strategies. Emergent strategies refer to those strategic decisions that are made as a response to environmental factors, where these decisions may not be part of the original or existing strategy, but may find new and unexpected ways of reaching the objectives of the original strategy. These decisions may also identify variations in the original strategy that open up new growth opportunities for the organisation (see Kaplan and Norton, 2001, pg315; Johnson et al, 2008, pg407). In some cases emergent strategies may aim at limiting some of the organisation’s operations in the greater interests of the organisation’s original objectives (Mintzberg et al, 1998; Johnson et al, 2008). Levels of Strategy: Johnson et al (2008) identify three levels of strategy, namely, corporate-level strategy, which refers to a generalised strategy for the organisation as a whole, giving focus to the overall objectives of the organisation; business-level strategy, which refers to how individual business units within the organisation compete within their respective markets thereby creating competitive advantage that is integrated within the corporate-level strategy; operational strategies “which are concerned with how the component parts of an organisation deliver effectively the corporate and business level strategies in terms of resources, processes and people” (Johnson et al, 2008, pg7). Thus it may be asserted that middle managers and other personnel within the operational level (sometimes referred to as local initiative) may have the task of identifying and relaying problems or opportunities for growth, for the benefit of the business and corporate levels, thus enforcing new strategies as a response to the identified problems or opportunities. These strategies are eventually culminated with the overall objectives of the organisation. In the words of Christensen and Raynor (2003), when the reliability of a strategy developed through an emergent process is recognised, it can be formalised, improved and exploited, thus transforming an emergent strategy into a deliberate (corporate, business-level) strategy (see pg 216). The writers also argue that emergent strategies also arise when an original and accepted strategy no longer meets the requirements of the overall objectives of an organisation (2003). Source : Christensen and Raynor, 2003 All of the above literature clearly indicates that emergent strategies are vital for organisations in order to achieve their corporate goals. It is now important to delve into the factors that give rise to emergent strategies. Internal Factors affecting Strategy: As mentioned earlier, there are internal and external factors that have implications on strategy. Internally, Organisational Structure probably plays the most important role in determining strategy, as it is “the pattern of relationships among positions in the organisation and among members of the organisation” (Mullins, 1999, pg520). Structure also makes it possible to implement managerial decisions by creating a framework of order and command through which the operations of the organisation can be planned, organised, directed and controlled (Mullins, 1999; also see Schein, 2004; and Brooks, 2003). In other words, a good structure is essential for an organisation to communicate its strategic objectives through its different entities, hence giving all its units a commonality of purpose. Strategic decisions are normally involved in the centralisation and decentralisation of structures, where a centralised structure focuses on a central corporate authority that makes the ultimate strategic decisions concerning the organisation as a whole. This allows for stronger control from the centre and more effective implementation of corporate-level strategy by not allowing individual units to become too independent and stray from the overall objectives (Schullion, 1995; Mullins, 1999; Schullion and Starkey, 2000; Schein, 2004). Mullins identifies some disadvantages of a centralised structure where he argues that it would unnecessarily lengthen the structural chain and would also result in a mechanised operation of individual units, where there is no room for change (1999). This may also result in less autonomy for the individual units in making decisions thereby barring opportunities for growth and identifying potential or existing problems (see Mullins, 1999; Robbins, 2003; Brooks, 2003). Decentralisation on the other hand offers a flatter structure with lesser channels of communication, and also offers more power to individual business and operational units to make strategic decisions based on both external factors and internal bureaucratic factors (Mullins, 1999; Robbins, 2003). This kind of structure encourages emergent strategies as opposed to centralised ones. However, internal structural change is not always a result of external factors, as is evident from many high profile cases, one of which is the complete decentralisation of the Royal Dutch Shell Group (Shell), where problems were identified within the structure of the organisation, where too many channels between the central and operational levels not only disrupted communication, but also resulted in the company giving incentives to top unwanted executive officials, which were not purely based on performance but simply because these positions existed. As a result of an emergent strategy initiated from officials in the operational levels, Shell decentralised its structure by eliminating unwanted executive departments, which enabled the company to carry out effective performance appraisals down to the operational levels thus reducing unwanted costs (Cibin and Grant, 1996). The important aspect of this case is that the Shell company’s corporate centre was not in an unstable environment externally, but the organisation acted upon a problem identified internally and implemented an emergent strategy. Corporate Governance on the other hand is intertwined within the concept of organisational structure, as the kind of structure determines the type of leadership. It is asserted that centralised structures mostly tend to have an authoritative leadership whilst decentralised structures encourage more of a democratic leadership where all officials and units of an organisation are given power to make decisions (Mullins, 1999; Robbins, 2003; Schein, 2004), which may sometimes be emergent in nature. In some cases, the leadership and structure of an organisation tend to be dependent on the culture of the geographical area that the business operates in. This is best explained by Hofstede’s model, where he categorises certain countries of operation into certain national cultural clusters thus giving organisations a framework to follow whilst operating in foreign locations (Hofstede and Bond, 1988; Hofstede, 1991, 1994, 1997; Hofstede and Hofstede, 2005). Emergent strategies in this case may again arise through local initiatives or operational levels that can identify local problems or opportunities for growth in their immediate environment. Human Resources Management (HRM) has been classified as a strategic function of an organisation in recent studies as it is involved in policy making in obtaining corporate objectives through HR strategies (Brown, 2003). This becomes especially true strategically for multi-national organisations, where special care needs to be taken through the recruitment process of international managers for an organisation’s overseas operations (Trompenaars, 1993; Schullion, 1995; Hofstede, 1997; Schullion and Linehan, 2005). This process has been classified under International Human Resource Management (IHRM) as expatriation, where corporate country nationals (CCN’s) are recruited, trained and prepared to venture into a foreign operation, which organisations believe is effective in the sense that corporate objectives would be better communicated by CCN’s (Evans et al, 1989; Jackson, 1995; Hofstede, 1997; Schullion and Linhan, 2005). Emergent strategies however, arose from local external factors like local culture(s), governmental laws, language(s) etc by emphasising on the need for host country nationals (HCN’s) to manage local operations (Keeley, 2001). External Factors affecting Strategy: The above discussion of the internal factors shows that in most cases there are elements of external forces driving internal changes through the process of emergent strategy making. As mentioned earlier, there are many prescribed methods of analysing the external environment where a business operates. The most commonly used tool is the PESTEL analysis, which stands for: Political factors that may affect the operation of a business depending upon the extent to which they are involved in the economy of any location. These may include political unrest; government laws concerning business operations; local employment laws and regulations; quality of the economy’s infrastructure like road and railways (important when considering transfer of resources) etc (see Kotler, 2003; Drummond et al, 2001). A good example of an emergent strategy as a result of political factors is the recent shift of American IT companies from the Indian city of Hyderabad to a city in another state, due to local political unrest as reported by the Hindu, India’s national newspaper. (http://www.hindu.com/2010/01/04/stories/2010010454150400.htm). Economic factors include issues like interest rates, foreign exchange, changes in taxation, inflation etc. Higher interest rates may mean it would cost more to borrow towards a business; A stronger currency may make exporting difficult due to higher foreign prices; Inflation may result in workforce demands for increase in wages; But a good national income growth may boost demand for a firm’s products (Kotler, 2003; Kotler & Armstrong, 2003; Drummond et al, 2001). For example, the current credit crunch has resulted in the closure of many firms due to poor national income depleting demand for their products, and in some cases businesses closed certain units of their business which were deemed unprofitable. Social factors include issues like culture, language, etc which determine the very structure and leadership style of an organisation in a given environment. Hence emergent strategies in this context would be to educate personnel on these social factors that may prove strategic to the organisation’s goals (Schullion, 1995) and/or invest in recruiting and training HCN’s for the organisation’s overseas operations which would reduce the possibilities of misunderstandings and contempt, whilst putting the organisation on the road towards competitive advantage (Keeley, 2001). This is especially important for today’s multi-nationals due to globalisation. Technological Factors: Technology is evolutionary and as it evolves so does business. New technology gives rise to new products and news ways of doing business. So depending on the nature of a business, product wise, it is beneficial for a company to keep abreast of changing technology (Wilson & Gilligan, 2005; Kotler, 2003). One of the most prominent aspects of technological advancement is the concept of online shopping, which has been embraced by most consumers and has more and more companies conducting their businesses online, and this can also be seen as an emergent strategy. An example of this is the online operation of Woolworth, which closed it’s in store operations due to the recession and regenerated itself through the internet. Environmental factors refer to changes in weather and climate conditions. Growing concerns on global warming has led to many companies following environmentally friendly procedures in conducting their businesses. Also, changes in weather can effect industries like tourism, farming, insurance etc (Kotler, 2003). Hence the emergent strategy for operating in an environmentally high risk location would be to increase the insurance prices. Legal factors are an extension of the political (governmental) factors, in that they address issues related to laws passed by the government in relation to many aspects of business. These may include: Consumer laws, which protect buyers from unfair business practices (example displaying wrong prices), and misleading description of products; Competition laws, which are in place to protect smaller firms from being monopolised and bullied by larger firms, and ensuring customers are not exploited by the bigger firms; Employment laws, which address issues like redundancy, minimum wages, working hours, dismissals etc basically aimed at protecting employees from exploitation by firms; Health and Safety legislation, which is concerned with making sure the workplace is as safe as is reasonably possible, and that adequate training is given to employees on health and safety issues (Kotler & Armstrong, 2003; Proctor, 2000). The process of using such tools to analyse the environment has been named environmental scanning, where researchers advise organisations to be in a constant state of scanning to keep abreast of these factors (Mintzberg et al, 1998; Johnson et al, 2008). The aim of an organisation to conduct analyses such as above is the ultimate corporate objective of attaining competitive advantage. Such tools also help organisations identify and eliminate any unwanted expenditures or investments, and venture into more potential profitable investments, all leading towards corporate goals. Conclusion: All of the above external factors play important roles when an organisation determines strategy. All these factors also seem to prompt emergent strategies but in differing contexts. It is evident that particularly turbulent environments may have higher demand for emergent strategies whilst relatively stable environments may have less demand for such strategies. This, however, does not mean that organisations in stable environments do not implement emergent strategies, as is evident from the case of the Royal Dutch Shell Group. It can also be assumed that firms with a decentralised structure offer more flexibility and opportunities for new strategies than those with centralised structures because of their rigidity. This may be in contradiction with the findings of Lynch (2006), who suggests that volatile environments require a centralised structure of organisation to maintain stability and order throughout the channels, whilst also being open to operational level inputs. In other words, a decentralised structure can only open possibilities in a stable environment whereas a central authority is better versed with unstable environments. This can be assisted with Hofstede’s theory of power-distance, which refers to the amount of inequality that exists within a group, or in this case, an organisation, between leaders and subordinates. 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